Banking Sector Consolidation: Modi Government’s New Push To Create Mega Banks

The Union government may cut the number of public sector banks to 12 from the existing 21 in the medium term, the Financial Express has reported, citing sources.

According to the daily, the government may set up three to four global-sized banks and reduce the number of state-owned lenders to about 12 as a part of its consolidation agenda. In June, Finance Minister Arun Jaitley said the government is “actively working” towards consolidation of public sector banks but declined to provide details, saying this was a price-sensitive information.

According to the source quoted by the daily, region-centric banks such as Punjab and Sind Bank and Andhra Bank will continue to operate as independent entities while some mid-size lenders would also remain.

Five associate banks and Bharatiya Mahila Bank became part of State Bank of India in the last consolidation drive that ended on 1 April, making it one of the top 50 banks in the world. The Finance Ministry is considering clearing another such proposal by this fiscal if bad loan situation comes under control. Public sector banks are sitting on a mountain of bad loans to the tune of over Rs 6 lakh crore .